Factual Issues Prevent Summary Judgment Under the Voluntary Payment and Accord and Satisfaction Doctrines

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Posted on: Jul 5 2023

The voluntary payment doctrine bars recovery of payments voluntarily made with full knowledge of the facts, and in the absence of fraud or material mistake of fact or law.¹ Notably, there is a presumption that payments are voluntary.² Thus, to rebut the presumption, the plaintiff must show that he/she protested the payment. In order for a protest to be effective, it must be in writing and made at the time of payment.³

In addition, the written protest must indicate that the plaintiff was reserving his/her rights when the payment was made⁴ and must communicate as much to the party receiving the payment.⁵

Moreover, “the voluntary payment doctrine does not apply when a party makes payments under economic duress or compulsion, e.g., when a party must make payment or face the loss of possession of its property.”⁶ Significantly, “[h]owever, a mere threat by one party to breach the contract by not delivering the required items, though wrongful, does not in itself constitute economic duress. It must also appear that the threatened party could not obtain the goods from another source of supply and that the ordinary remedy of an action for breach of contract would not be adequate.”⁷

[Eds. Note: We examined the voluntary payment doctrine here, here, here, and here.].

An accord and satisfaction “requires the existence of an actual dispute, manifested by a specific demand by the alleged creditor and an express, good-faith disagreement with that demand by the debtor.”⁸ The “essential element of an accord and satisfaction is a clear manifestation of intent by one tendering less than full payment of an unliquidated claim that the payment has been sent in full satisfaction of the disputed claim.”⁹

Notably, as relevant to today’s article, the “payment of an admitted liability is not a payment of or in consideration for an alleged accord and satisfaction of another independently alleged liability.”¹⁰

Moreover, the acceptance of a payment in full satisfaction of a disputed claim without a reservation of rights may operate as an accord and satisfaction.¹¹ Notwithstanding, even under that circumstance, “there must be a clear manifestation of intent by the parties that the payment was made, and accepted, in full satisfaction of the claim.”¹²

Finally, using words such as “full and final payment” or “in “settlement of” is not dispositive of the issue.¹³ Whether there is unequivocal language expressing the intent of the parties is a matter for the “trier of facts, be it court or jury.”¹⁴

On June 29, 2023, the Appellate Division, First Department addressed the foregoing issues in Pinnacle Managing Co., LLC v. Slade Industries, Inc. (here).¹⁵

Slade provided elevator maintenance and repair services to about 80 to 100 buildings managed by Pinnacle and its affiliates. The written contracts between the parties stated that Slade would “systematically and regularly examine, adjust, repair, replace and lubricate, as required, components” of the elevators. According to the complaint (as well as the briefing on appeal), Pinnacle terminated Slade in late November 2017, after determining that its prices were too high. Prior thereto, Pinnacle directed Slade to present all of its unpaid invoices for review, consideration and approval. Having done as requested, Pinnacle paid Slade $312,709.76, representing payment of all Slade’s outstanding invoices in full satisfaction of the monies owed to Slade. At the time of payment, there was no reservation of rights by plaintiff.

Approximately two months after Slade was paid and terminated, Pinnacle allegedly learned that Slade had failed to lubricate some elevators on a regular basis, requiring extensive repair work in six of Pinnacle’s buildings. Pinnacle brought the action to recover the damages allegedly sustained as a result of Slade’s failure to properly service and maintain Pinnacle’s elevators in an amount not less than $135,000.

In its complaint, plaintiff asserted claims for breach of contract, negligence, and unjust enrichment. The motion court dismissed the latter two claims on a pre-answer motion to dismiss.

Thereafter, Slade filed an answer in which it denied all the material allegations in the complaint and alleged that Pinnacle’s payment of $312,709.76 was “in full satisfaction of the indebtedness owing to Slade.”

In addition to the foregoing, Slade asserted three affirmative defenses and two counterclaims. The first affirmative defense alleged that “the doctrine of accord and satisfaction bar[red] plaintiffs’ claims.” The second affirmative defense stated that “Plaintiff’s claim ha[d] been compromised or settled.” The final affirmative defense alleged that “Slade, at all times, performed for plaintiff consistent with its contractual obligations.”

In its first counterclaim, Slade alleged that “if this Court does not enforce Slade’s accord and satisfaction defense, then [it would] seek judgment against Pinnacle for the balance owing to Slade for the performance of [its] services.” In its second counterclaim, Slade sought legal fees.

Following discovery, defendant moved for summary judgment.

The motion court denied the motion, holding that defendant “neither” established “‘accord and satisfaction’ nor ‘voluntary payment’, as a matter of law.”

With respect to the voluntary payment doctrine, the motion court found that plaintiff “raised an issue of fact whether it had full knowledge of the extent to which defendant performed the contracted for services at the time it rendered payment of the invoices for such services.”

As for accord and satisfaction, the motion court agreed with plaintiff that payment of an admitted liability is not payment or of in consideration for an alleged accord and satisfaction of another independently alleged liability. The motion court explained that plaintiff sought approximately $100,000 in damages for breach of contract, thus admitting that approximately $212,000 of the amount it remitted was compensation defendant earned for services performed.

The motion court also found that defendant failed to establish “‘unequivocal language expressive of intent’ on the part of plaintiff that it made payment of the invoices only on condition that defendant accepted same in full satisfaction of any dispute between the parties.”

The First Department unanimously affirmed.

Regarding the voluntary payment doctrine, the Court found that “the record present[ed] issues of fact as to whether plaintiff rendered payment without full knowledge of the facts.”¹⁶ The Court explained that “[p]laintiff presented evidence showing that it paid defendant before plaintiff obtained information indicating that defendant had breached its contractual obligations, thus raising a triable issue of fact regarding whether plaintiff had full knowledge of the facts.”¹⁷

As to accord and satisfaction, the Court found that “the record lacked unequivocal language expressing [defendant’s] intent that plaintiff paid in satisfaction of an ongoing dispute between the parties when it paid the invoices supplied by defendant in full.”¹⁸ The Court explained that the “record [did] not show any genuine controversy concerning the amount due, and defendant did not produce any records or documents evincing an express agreement between the parties that plaintiff’s payment constituted a settlement of any claims.¹⁹

Takeaway

The voluntary payment doctrine provides that a person cannot recover payments made with full knowledge of the facts, and in the absence of fraud or material mistake of fact or law. The doctrine is an affirmative defense to the repayment of money to which the defendant presumably has no legal claim. It is not an independent cause of action.

In Pinnacle, the record did not support application of the doctrine. There were issues of fact as to whether plaintiff made the payment to Slade will full knowledge of the facts. This was especially so, as noted by the First Department, given the evidence that plaintiff submitted showing that it paid Slade before it learned that Slade had allegedly breached its contractual obligations.

Accord and satisfaction is an affirmative defense that must be proven by the party asserting the claim.²⁰ To establish the defense, the party asserting it must establish that there is a disputed unliquidated claim between the parties which they have mutually resolved through a new contract discharging all or part of their obligations under the original contract.²¹ In Pinnacle, the record lacked unequivocal language expressing the parties’ intent that plaintiff paid in full satisfaction of an ongoing dispute between the parties when it paid the invoices supplied by defendant. In fact, as noted by the First Department, the record did not show any genuine controversy concerning the amount due, and lacked any evidence evincing an express agreement between the parties that plaintiff’s payment constituted a settlement of any claims.

Footnotes

Dubrow v. Herman & Beinin, 157 A.D.3d 620 (1st Dept. 2018) (citation and quotation marks omitted).
See 82 N.Y. Jur. 2d, Payment and Tender, § 82.
See Nunner v. Newburgh City School Dist., 92 A.D.2d 888 (2d Dept. 1983).
DRMAK Realty LLC v. Progressive Credit Union, 133 A.D.3d 401, 405 (1st Dept. 2015).
C.f. Walton v New York State Dept. of Correctional Servs., 13 N.Y.3d 475, 489 (2009) (noting that “the protest requirement would have been fulfilled by a letter to MCI,” the entity levying the charge, “and DOCS,” the entity receiving commission for that charge “at the time the bills were paid”).
Rocky Knoll Estates MHC, LLC v. C W Capital Asset Mgmt., LLC, 2015 WL 1632637, at *2 (W.D.N.Y. Apr. 13, 2015); see also U.S. Bank Nat. Ass’n v. PHL Variable Ins. Co., 2014 WL 2199428, at *10 (S.D.N.Y. May 23, 2014) (voluntary payment doctrine does not apply “where payments were necessary in order to preserve [the plaintiff’s] property or protect his business interests”).
Austin Instr. v. Loral Corp., 29 N.Y.2d 124, 130 (1971). See also Oleet v. Pennsylvania Exch. Bank, 285 A.D. 411, 414-15 (1st Dept. 1955).
Rosenthal v. Quadriga Art, Inc., 105 A.D.3d 507, 508 (1st Dept. 2013).
Complete Messenger & Trucking Corp. v. Merrill Lynch Money Markets, Inc., 169 A.D.2d 609, 611 (1st Dept. 1991).
Manley v. Pandick Press, Inc., 72 A.D.3d 452 (1st Dept. 1980).
Nationwide Registry & Security Ltd. v. B&R Consultants, Inc., 4 A.D.3d 299, 300 (1st Dept. 2004).
Id.
Equitable Tower Assocs. v. Asarco Inc., 127 A.D.2d 456, 457 (1st Dept. 1987); Rosenthal v. Quadriga Art, Inc., 105 A.D.3d 507, 508 (1st Dept. 2013).
Manley, 72 A.D.3d at 458.
Pinnacle Managing Co., LLC v. Slade Indus., Inc., 2023 N.Y. Slip Op. 03558 (1st Dept. June 29, 2023) (here).
Slip Op. at *1 (citing, Dillon v. U-A Columbia Cablevision of Westchester, 100 N.Y.2d 525, 526 (2003); New York Eye & Ear Infirmary v. Bowne, 200 A.D.3d 467 (1st Dept. 2021)).
Id. (citing, Dubrow, 171 A.D.3d at 673; Rite Aid of N.Y., Inc. v. Chalfonte Realty Corp., 105 A.D.3d 470 (1st Dept. 2013)).
Id. (citing, Rosenthal v. Quadriga Art, Inc., 105 A.D.3d 507, 507-508 (1st Dept. 2013)).
Id. (citing, EchoStar Satellite L.L.C. v. ESPN, Inc., 79 A.D.3d 614, 619 (1st Dept. 2010)).
19 N.Y. Jur. 2d, Compromise, Accord, and Release, § 26.
6 Corbin, Contracts, § 1276; Restatement, Contracts 2d, § 281; Merrill Lynch Realty/Carll Burr, Inc. v Skinner, 63 N.Y.2d 590, 596 (1984).

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.